The Welfare Analysis of Product Innovations with an Application to CT Scanners

Manuel Trajtenberg

No 1724, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The main goal of this paper is to put forward a methodology for the measurement of product innovations using a value metric, i.e., equating the "magnitude" of innovations with the welfare gains that they generate. This research design is applied to the case of Computed Tomography (CT) Scanners, a revolutionary innovation in medical technology. The econometric procedure centers on the estimation of a discrete choice model (the nested multinominal logit), that yeilds the parameters of a utility function defined over the-changing-quality dimensions of the innovative product. The estimated flow of social gains from innovation is used primarily to compute a social rate of return to R&D, to explore the interrelation between innovation and diffusion, and to trace the time profile of benefits and costs, the latter suggesting the possible occurance of "technological cycles".

Date: 1985-10
Note: PR
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Published as Journal of Political Economy, April 1989, 97(2), 444-479.

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